For once, Paul Krugman is right that bitcoin (or as he says “BitCoin” – Krugman usually has trouble with both details and the big picture) is evil. (See NYTimes.) Evil, that is, if you are an authoritarian statist who believes that it is commendable to “monitor” people and control people. Bitcoin is evil if you want people to be robbed of their money through the hidden tax of inflation every year. Bitcoin is evil if you believe that people don’t have the right to decide where to live. Bitcoin is evil if you are a socialist, communist, fascist, crony-capitalist or any other type of authoritarian who do not trust people to run their own lives. They are all the same side of the coin – anti-liberty. In short, Bitcoin is evil if you don’t want people to be free.
Which side of history do you want to be on? That of freedom, or Krugman’s pro-control, big government, big spy, big bank-loving, crony-capitalist, inflation backers? The answer should be clear.
Point by point, Krugman’s article “Bitcoin is Evil” is full of misinformation and misunderstanding of many things.
- First Krugman states: “For currency to be adopted as a medium of exchange there has to be trust in the ability to honor the underlying obligation and the ability for central banking policy to control inflation.” Is this a serious statement, is he kidding us, or just uninformed? A loss of 98% purchasing power in 100 years of the Fed “controls inflation”? How is that good for the poor and middle class? Or anyone? Oh yeah, it isn’t. People can’t save and move their way up the ladder reliably. Is that good for the power-hungry authoritarians? Yes, because it is a hidden tax on everyone.
- Krugman states: “It’s always important, and always hard, to distinguish positive economics — how things work — from normative economics — how things should be.” Krugman nearly exclusively writes about normative economics, and yet treats them as positive economics writings and then wonders why people could disagree with him. He writes about politics and treats it as if it is normative. Krugman apparently, has a problem with this because it is “always hard.”
- “[Bitcoin could] damage states ability to collect tax and monitor their citizens financial transactions.” Remember that Krugman is an authoritarian statist at heart who wants to “monitor” citizens financial transactions and thinks that is a good thing! In a free country, you should not be monitored. Those are tactics of totalitarian states. Regardless of what Krugman and his cronies want you to think, the United States Constitution is a document of enumerated powers, not enumerated liberties. The Constitution does not authorize spying on its citizens. One hundred years of anti-freedom politicians have eroded that concept, but anyone without the motivation of control and who is honest knows the truth. When the state has the power to monitor everyone, it means they want to control everyone. Of course, he is incorrect even here in his assumption that bitcoin is anonymous and can’t be monitored. The bitcoin blockchain is completely public, and it records every transaction. You can’t say that for cash – only the NSA may be able to do that.
- Next, Krugman can’t understand why bitcoin has value. First, he needs to clarify why the dollar has value. He claims because it “is backed by the government”. What does that actually mean? For a long time the dollar was backed by gold and silver, but for more than 40 years, the dollar has been backed only, as Krugman says, by “force”. At one time the full faith and credit of the United States Government was meaningful, but with quantitative easing to the infinity the value of the dollar is eroded. Bitcoin on the other hand is backed by math, trust, a global transaction ledger, and usefulness as a store of value, a medium of exchange, a vehicle for asset protection, and many other uses. Legacy currencies work solely on confidence now. The minute a large enough percentage of the people using a legacy currency do the math and see how decades of debasement and money printing (whether euphemistically called “Quantitative Easing” or some other nonsense) they will be in serious trouble.
- Krugman seems to think that the bitcoin blockchain can just disappear which is like predicting that email or the web will just vanish. This is ludicrous, although he seemed to think something similar about the internet in 1998.
- Krugman suggested minting $1 trillion coins (yes, TRILLION) to pay of the United States Debt. Does he really care about this “store of value” or the ability to “control inflation” idea he mentions? Of course not. It is about controlling the money supply to control the people and bitcoin takes that out of his hands.
- Krugman tries to color his words to get across his point while seeming aloof and neutral. “Hoarding” is evil, “saving” may be evil or good, depending on who is doing it. For someone with a Nobel Prize, these word games are unacceptable. Of course, it is not a real Nobel Prize, now just one given as a reward for a lap dog, so what do you expect.
Let’s look at some of the benefits of bitcoin that Krugman’s technological friends can’t seem to explain to him:
- Bitcoin eliminates capital controls when used as a transfer mechanism. Totalitarians don’t like this.
- Bitcoin provides nearly instant, nearly frictionless transfer around the world.
- Bitcoin provides free or nearly free transfer of value around the world.
- Proof of existence – essentially a foolproof notary service.
- Colored coins smooth trade without the need for investment banks, brokerages etc.
- Non-reversable, non-ciunterfeitable gives it lots of value.
- No middlemen needed.
- Distributed DNS service – what the internet domain name system runs on.
- Triple entry accounting.
- Software can own and transmit value for the first time. This means that computer programs can purchase services for themselves.
- Bitcoin can be used as an anonymous, encrypted message system with BitMessage.
- Bitcoin supports multi-signature transactions, providing trust and escrow.
- Bitcoin helps avoid Cyprus-like confiscations of bank accounts.
- Bitcoin helps avoid censorship by supporting the free press – see wikileaks.
- Bitcoin is a much more reliable store of value than the dollar. Where the dollar loses value every year, bitcoin gains it.
- Bitcoin addresses the Two Generals problem.
- Bitcoin saves business money by removing processing fees.
- Bitcoin can not do some of what the Federal Reserve, Government, and Banks have been accused of doing: faking LIBOR rates, the Fed buying on select assets to prop up their prices, the government requiring bad loans to be issued for social policy and then wondering why it blew up, or printing money to buy votes among other nefarious schemes that they have cooked up.
- Bitcoin’s value is also supported by its proof of work mechanism.
Remember that the central-planners do not like it when people have the nerve to want to avoid having their purchasing power stolen by inflation or to benefit the powerful when they need bailouts. Krugman’s incoherent argument boils down to him saying that any kind of monetary value – such as gold, silver, bitcoin, oil – that is not government money is worthless.
Let’s recall what Krugman stated in 2012:
“It’s true that green pieces of paper have no intrinsic value (except that they can be used to pay taxes, which is actually important), so that my willingness to accept green paper from you is based only on my belief that I can in turn hand that green paper over to someone else. But there’s nothing to prevent that process of monetary circulation from going on forever.”
Math, hard science, and engineering are now going to meet the dismal science and teach it what can happen when you take the ability to scheme to manipulate the money supply away from a select group of powerful people. It is very telling that the article states that Bitcoin is “intended to damage central banking and money issuing banks”. If Krugman and his masters were not worried about the potential of bitcoin to expose their schemes, he would not be obsessing about bitcoin repeatedly over the last year. Krugman et al know that their games that they play with paper money are being exposed by technology and don’t like it. Loss of control ruins their plans to monitor and control everyone else and to take value from every working person to transfer it to someone else. This is why the “dismal science” is not “science” – it can be completely wrong for decades and still exist.
Finally, since Krugman believes the second to last paragraph in his column is a good way to encourage polite discussion, in that same vein: Krugman likes Keynesian economics because it “pushes his big government, central bank, inflation loving, control-freak fetish which pleases his masters in government. ” One should expect better from the New York Times, but alas not any more.
Just remember that Krugman is as informed about bitcoin and economics as he was about the Internet when he said in 1998 when he stated:
The growth of the Internet will slow drastically, as the flaw in “Metcalfe’s law”–which states that the number of potential connections in a network is proportional to the square of the number of participants–becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.
As the rate of technological change in computing slows, the number of jobs for IT specialists will decelerate, then actually turn down; ten years from now, the phrase information economy will sound silly.
Krugman is a paid shill, a fool or both (the original link is to archive.org).
I will point out again another instance when Paul Krugman was right: in his 1998 article the title hits the nail on the head: “Why most economists’ predictions are wrong.” Krugman proves the rule.
To quote Jefferson:
“If Americans ever allow banks to control the issue of their currency, first by inflation and then by deflation, the banks will deprive the people of all property until their children will wake up homeless.” – Thomas Jefferson
Jefferson was right.